What's the best way to save money?

A

Trick question: the best way to save is actually to invest wisely.

The best way to save money would have to be by opening a savings account, right? After all, it’s an account specifically designed for “saving.” Actually, we’re sorry to have to rain on your local bank branch’s parade — and perhaps deprive you of the free piece o’ junk they’re probably offering with a new account — but saving your money in a savings account is a profoundly bad idea.

The interest rates in an account like that will rarely go above 1.5 percent per year — since 1913, the average inflation rate in the US has been over 3 percent. So if you leave your money in a bank account for long enough, you’ll actually find yourself getting poorer.

To really save your money requires you to figure out a way for your money to grow well above the rate of inflation. For this, you’ll need to invest your money. And while investing may sound way too speculative and risky for those hoping to protect a nest egg, investing is the only way to grow your money in a significant way. If you need proof, look at historical stock prices. Despite a few deep troughs through history, the line always recovers and rises — a path your savings should be mirroring.

There are tried and true ways to mitigate investment risk. Diversification — not putting all your eggs in one basket — is one way. Risk-wary savers may decide to allocate some part of their savings to less volatile bond investments. Those seeking more growth with a little more short-term risk should steer themselves towards investments in a diverse basket of equities, aka, stocks. Whichever path is the right fit, the absolute best way for an ambitious saver to invest wisely is create a diversified portfolio of investments that don’t eat up all your gains through the high annual fees (common culprits include high-fee mutual funds and the fees from traditional investments advisors). The absolute best way we know how to achieve optimum growth of your savings is by investing in the kind of market-hugging, low-fee ETFs that Wealthsimple proudly suggests to all our clients.